US Treasury rally accelerates as market jitters mount

Ten-year yield on government debt falls to lowest level since September 2017

The rally in US government debt has picked up pace, sending yields on the benchmark 10year Treasury note to a 20-month low amid mounting concerns about the Us-china trade war and growing expectations the Federal Reserve will be forced to cut rates.

Investors have bought into the highly rated bonds over the past few days as they have shifted from other investments viewed as more risky, given uncertain political and economic conditions.

The move has sent yields on bonds, which move inversely to prices, to levels last seen in early 2018, according to the Barclays aggregate index that tracks $53tn worth of global investment grade paper.

The 10-year Treasury yield fell as much as 4.3 basis points on Wednesday morning to trade at a low of 2.22 per cent, its lowest level since September 2017. The yield had climbed above 3.2 per cent in November.

Across the Atlantic, German Bunds of the same maturity were trading with a yield of minus 0.167 per cent, just above their record lows of 2016. Negative yields mean investors who hold the paper to maturity are guaranteed a loss.

Global stock markets faced a fresh bout of selling that sent MSCI’S broad measure of developed mar

ket equities down 0.85 per cent on Wednesday. It has fallen 5.1 per cent this month, leaving it on track for the heaviest fall since the ructions that swept global markets at the end of last year.

Central banks around the world, led by the Fed, have this year moved towards embracing more dovish policy. Trading in federal funds futures, which are used by investors to hedge against or speculate on potential Fed moves, now point to odds of 49 per cent that the Fed will reduce rates two times this year, exceeding expectations of a single cut for the first time.

A similar situation has played out in Europe amid mounting concerns that the continent may suffer collateral damage in the trade and technological dispute between the US and China. Expectations for subdued growth and inflation this year in large economies such as Germany have also sparked speculation among some analysts that the European Central Bank may need to consider tweaks to its bond portfolio, or even consider a new round of bond purchases should the situation deteriorate further.

In a sign of the angst among global investors, the yield on the US 10-year Treasury note is now almost 13bp below that on the three-month bill, a level last seen in August 2007 in the lead-up to the financial crisis. Historically, an inverted yield curve has foreshadowed recessions.